Short-Term Spending Bill Hinders Entrepreneurial Programs – October 4, 2016

Short-Term Spending Bill Hinders Entrepreneurial Programs
October 4, 2016

After weeks of negotiations, Congress reached an agreement on several key issues and averted a Government shutdown with only two days left before the end of the fiscal year. The short-term funding measure – called a continuing resolution or “CR” – keeps FY16 spending levels in place through December 9th.
Shutting down the government is a last resort and the worst outcome from these funding disputes, but a CR also has negative ramifications for entrepreneurial programs. This year, AEO’s advocacy efforts led to impressive funding increases for the Small Business Administration’s (SBA) Microloan program. Appropriators in the House and Senate increased lending authority by 25% to $44 million. The House also increased money available for technical assistance by the same 25% to $31 million. While this is a tremendous victory and shows that Congress is prioritizing entrepreneurs, a CR that keeps last year’s funding levels in place will not include these substantial increases. Microlenders and entrepreneurs will certainly benefit from additional funding, but will have to wait until at least December for these levels to be realized.
A CR also hampers program administration. For example, the Microloan program operates under the 1/55th rule, which means that SBA cannot distribute more than 1/55th of its total microloan funding to a given state (or territory) during the first half of the fiscal year. According to AEO’s research, 23 distributions to lenders in 17 states, totaling nearly $17 million were delayed in FY15 because of this limitation. AEO has advocated for a change to this rule because it hinders SBA’s ability to fund the most effective, high-volume lenders.
The drawbacks of the 1/55th rule are on full display during a CR. With a two month CR like we have now, the SBA will only have 2/12 of their $35 million FY16 appropriation to lend. That 2/12 of $35 million will be divided using the 1/55th rule, meaning each state can only receive $106,000. If the full FY17 appropriation of $44 million were made, than SBA would be able to distribute $800,000 to each state. Under normal circumstances, the 1/55th rule severely limits SBA’s ability to distribute their Microloan funds effectively. A CR exacerbates this issue.
Additionally, the CR puts other programs that require 100% funding to complete including – Microloan TA and PRIME grants – on hold. SBA is unable to accept grant applications until appropriations are determined for the full year, which puts potential grantees and SBA in a time crunch.
For two decades, Congress has been unable to pass the 12 separate appropriations bills that are needed to fund the government and have instead relied on stopgap funding measures and end-of-the-year catchall bills. This year is no different. AEO Members should celebrate Congress’ increases in funding for critical entrepreneurship programs, but must also pressure Congress to fulfill their budget and spending requirements.